How to Manage Risk in Your Personal Financial Planning

How to Manage Risk in Your Personal Financial Planning

March 23, 2017
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When I give investment advice to my clients I tell them that financial risk is inherent in the field of investment. We all want to see our money grow. Unfortunately, there are times when instead of optimized returns we experience losses or slow growth.

My experience is that every investor should be acutely aware of the relationship between financial risk and monetary return. Risk isn’t something to avoid, but it should be controlled. Managed risk allows us to prepare for unpredictable events that can wreak havoc with our finances.


Here are five strategies to handle the risk in your personal financial planning:

1. Your risk profile

We all have a different comfort level with risk. An investment plan that requires too much risk for your financial well-being may not be the best strategy. The key is to achieve the right balance between risk and return. To know yourself well - understand your risk profile and capitalize on your strengths - can increase your chances of success.

2. Insurance

Have you got the right amount of insurance? For example, an unexpected event such as death, disability, or other personal loss, is certainly not something for which you can easily plan. Yet, the financial ramifications can be staggering—not only to you but to your family, as well. Insurance, in all its varied forms, is simply a method for managing risk.

3. Savings

There are two kinds of savings to consider – long term or retirement and emergency.  Make sure that an emergency fund is an item in your budget and set aside a portion of every paycheck. The rule of thumb is that an emergency savings fund should cover three to six months’ worth of living expenses. Take advantage of any employer-sponsored retirement accounts. Commit to a 52-week savings plan. Even small amounts deposited on a regular basis will add up over time.

4. Debt and credit

Debt isn't always bad. Having debt—and paying it off—is beneficial for your credit score. A high credit score will make it easier for you to buy a house, a car, or get a bank loan. Without debt, you could never prove to creditors that you are trustworthy. If you are paying off all your debts on time, then you have nothing to worry about.  

5.  Your health

Did you know that the most common cause of bankruptcy is ill health? Don’t wait until it’s too late to keep fit and stay healthy. A commitment to a healthy lifestyle and regular medical checkups is a good strategy for maintaining overall well-being. 

When it comes to financial investments, there is no single solution that works equally well for everyone. A financial advisor in DC can be a trusted ally who can facilitate putting a sound financial plan in place today to help you have a more financially secure tomorrow. Have questions? Get in touch today!

Material discussed is meant for general illustration and/or informational purposes only, and it is not to be construed as investment, tax, or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon when coordinated with individual professional advice.